13.

Stockholders’ equity:

Stock-based compensation

During the six months ended June 30, 2017, a total of 807,503 options to purchase Common Stock, with an aggregate fair market value of approximately $1.5 million, were granted to Company employees. The options granted have a term of 10 years from the grant date and vest ratably over a three year period. The fair value of each option is amortized as compensation expense evenly through the vesting period.

The Company’s stock-based compensation expense is allocated between research and development and selling, general and administrative as follows:


	Three months ended,				Six months ended,
Stock-based compensation expense	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
Research and Development	$	0.4	$	0.5	$	0.8	$	1.6
Selling, General and Administrative	$	2.5	$	2.9	$	5.2	$	5.9

The fair value of each option award is estimated on the grant date using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based on implied volatilities from historical volatility of the Common Stock, and other factors estimated over the expected term of the options.

Expected term of options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus contract term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term. The weighted average for key assumptions used in determining the fair value of options granted during the six months ended June 30, 2017 follows:


Expected price volatility		78.25% - 78.64%
Risk-free interest rate		1.82% - 2.01%
Weighted average expected life in years		6 years
Dividend yield		—

Option activity during the six months ended June 30, 2017 was as follows:


	Number of Shares			Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Outstanding at January 1, 2017		3,468,991		$	4.14
Granted in 2017
Officers and Directors		—			—
Others		807,503			1.90
Exercised		—			—
Forfeitures		(1,011,979	)		6.07

Outstanding at June 30, 2017		3,267,515		$	2.99	$	1,277

As of June 30, 2017, options exercisable totaled 1,921,093. There was approximately $10.5 million of unrecognized compensation cost related to non-vested share-based compensation awards, including options and restricted stock units (“RSUs”) granted. These costs will be expensed through 2020.

Restricted stock units

During the six months ended June 30, 2017, 2,180,000 RSUs were granted to the Company’s executive officers and employees, with a fair market value of approximately $4.1 million. The fair value of restricted units is determined using quoted market prices of the Common Stock and the number of shares expected to vest. These RSUs were issued under the Company’s 2011 Equity Incentive Plan, as amended. Of the aforementioned 2017 RSU grants, 2,060,000 were one-half time-based and one-half performance based and all vest over a three-year period. The performance-based RSUs provide for vesting if specified predetermined net revenue and operating income goals are achieved with respect to the annual fiscal years 2017 through 2019. Actual performance relative to the predetermined performance measures are evaluated independently at the end of each fiscal year and the number of awards that will vest will be based upon the percentage of the individual performance measure achieved relative to the predetermined target, which allows for partial vesting relative to separate performance ranges. The remaining 120,000 RSUs were granted to Company employees and vest in full in one year. Cumulatively, these RSUs were granted over the plan allotment of our 2011 Equity Incentive Plan and will require approval during the 2017 annual stockholder meeting.


	Number of Restricted Shares			Weighted Average Fair Market Value Per RSU
Outstanding at January 1, 2017		4,584,297		$	7.29
Granted:
Executive officers		1,640,000			1.80
Directors		—			—
Employees		540,000			2.04
Vested		(1,357,952	)		2.04
Forfeitures		(425,676	)		2.84

Outstanding at June 30, 2017		4,980,669		$	5.04

Warrants

The Company has granted warrants to purchase shares of Common Stock.

The fair value of each warrant grant is estimated on the grant date using the Black-Scholes valuation model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based on implied volatilities from historical volatility of the Common Stock, and other factors estimated over the expected term of the warrants.

Expected term of warrants granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus contract term. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term. The weighted average for key assumptions used in determining the fair value of warrants granted during the six months ended June 30, 2017 follows:


Expected price volatility		78.39%
Risk-free interest rate		1.92%
Weighted average expected life in years		6 years
Dividend yield		—

Warrant activity during the six months ended June 30, 2017 was as follows:


	Number of Shares		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
Outstanding at January 1, 2017		84,986	$	3.53
Granted in 2017		1,701,583		2.38
Exercised		—		—
Forfeitures		—		—

Outstanding at June 30, 2017		1,786,569	$	2.43	$	—